Charitable donations of wealthy Indian firms is only 0.6-1% of GDP, compared with 2.2% for American companies

Many believe that Indian businessmen have cash registers for hearts. Their philanthropic contributions are believed to be insignificant in comparison to their wealth. According to the 2012 Forbes list, the wealth of the 100 wealthiest Indians is around $250 billion—13.89 per cent of India’s GDP. But, according to the estimates of a 2010 report of Bain Company, the charitable donations of Indians is only 0.6 per cent to 1 per cent of the GDP, when the charitable contribution of Americans is around 2.2 per cent of the GDP.

But, before one jumps to a conclusion, there is the other side of the story as well. On a program aired on the CNN recently, Ratan Tata, former chairman of Tata Sons, said that of 60-65 per cent of the Industrial proceedings of Tata Sons goes  into programmes for education, medical, rural development or eradication of poverty. Only two per cent of the industrial proceedings go to the family.

Tata is the chairman of the Tata Trusts, which is among the largest private sector philanthropic trusts in India.

He is not alone. In February 2013, Azim Premji, the Chairman of Wipro became the first Indian to sign the giving pledge. Premji had also donated $ 2.3 billion to a trust to fund Azim Premji Foundation, an education-oriented non-profit. The giving pledge group was founded by Warren Buffett and Bill and Melinda Gates in 2010 to urge rich businessmen to donate a significant part of their wealth. With a net worth of $ 16 billion, Azim Premji is the 3rd richest Indian, and the 41st richest person in the world. Premji is also among the world’s top five givers. But, many think of them as an anomaly in a country where businessmen have billion dollar homes.

Gurcharan Das, author and former Procter and Gamble India CEO said philanthropy is a new idea in India when countries like the United States have a culture of philanthropy. “More and more people will donate to charitable causes in the future.” he said.

However, evidence suggests that philanthropy in India is often informal, and far more than  suggested by data. Bibek Debroy, an economist, and a research professor at Centre for Policy Research said though Indians do a lot of philanthropy, much of it is to religious institutions, is informal and does not appear in the official records.

Veena Jha’s recently published work, “India Emerging: The Reality Checks” sheds light on the long philanthropic tradition in India. Charitable donations have increased radically in the post-reform period. Studies of ‘The Society for Participatory Research in Asia’ between 2000 and 2002 shows that 53 per cent of the charity in India operates in rural areas and nearly half of it is unregistered.

Some studies suggest that nearly half of Indian households give charity. In India, non-profit activity, especially private nonprofit activity, is much higher than the global average. According to Bain and India’s annual philanthropy report, the private donation to charity had gone up by 50% from 2006 to 2011.

“A part of the philanthropic donations in India is to institutions abroad, like the universities and think-tanks. This is partly for visibility. But, many of them have studied abroad, and feel indebted to their alma mater.” Bibek Debroy said.

In 2010, Anand Mahindra had donated $ 10 million to the Harvard University, and Ratan Tata’s $ 50 million donation to the Harvard Business School in 2010 was the largest international donation in its history. In December 2012, a Delhi-based entrepreneur Sharik Currimbhoy had pledged $12.12 million to Columbia University, and businessman Siddharth Yog had gifted $11 million to the Harvard Business School.

Some economists have proposed an estate tax and corporate social responsibility (CSR) practices to increase the philanthropic contribution in India. While the former was not to the liking of the Finance Ministry, at least in the budget for 2013-14, the latter is there in the Companies Bill, 2012 which is yet to be passed by the Rajya Sabha.

Ajay Shah, a professor at National Institute of Public Finance and Policy (NIPFP), said an estate tax will help inter-generational class mobility and to reduce the concentration of wealth.

“Incentives do matter. But, I do not see this as a black-and-white issue. It is perfectly possible for a man at the bottom to rise to the top, and I admire people who come from a humble background, but in our country, it is very difficult to do so,” he said.

However, he voiced views against CSR. ” But, CSR is a bad idea because it puts managers in control of the purported charitable objectives of shareholders.” Ajay Shah said.

But, doing charity is intrinsically difficult. Steve Jobs had once said that he is not deeply engaged in philanthropy because there is no measurement system—-It is very hard to measure whether you have succeeded or not.

According to the Bain and India philanthropy report, 80 per cent of the individuals and 90 per cent of the NGOs are satisfied with the efficacy of their philanthropic activities. Many economists think that this is because people often donate for the “feel-good” factor, and prefer to believe that their money goes into the right causes.

Many, like Bill Gates had proposed solutions to this problem which is magnified in India, where philanthropy is informal, and the feedback mechanism weaker. Some proposed solutions include measuring the funding for social causes, the teacher absentee rate, and the extent of corruption.

Gurcharan Das opined that this is not severe problem. “The Gates’ foundation is known for their accountability and their work to counter AIDS in many poor countries, including India. Though it is hard for individuals to do philanthropy, they can pick a good NGO to donate their money to. It only takes a Google search to find out the NGOs that are more accountable.” he said.

But, Nitin Pai, the founder of The Takshashila Institution said because it is difficult to measure the outcome in philanthropy, people often measure the outputs. “Across the world, they tend to focus on impressing the donors, which is not always a good thing. Feedback mechanisms, if not properly designed, can skew the outcome. It is important to realize that this is intrinsically difficult.” he said.

And, charity will never be sufficient. Economist Jagdish Bhagwati once said that an outright redistribution of wealth would only increase the food consumption of the poor by one chapatti a day. Some economists have estimated that sharing the total wealth in developing countries would leave its citizens with a few dollars a day. It is clear that charity will not solve the problem of world poverty.

“Poverty is too big a problem to be solved by charity alone, but that does not undermine the case for charity.”, Ajay Shah said.

source: http://www.business-standard.com / Business Standard / Home> Companies> Features / by Shanu Athiparambath / New Delhi – April 20th, 2013